Business finance terms, explained simply.
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Compound Annual Growth Rate (CAGR)
Calculating the Compound Annual Growth Rate (CAGR) is a useful method for determining the average growth of an investment or a business over a specific period.
Read more →Convertible Equity
Convertible equity is a form of investment that startups often use to raise capital.
Read more →ETC Financing
Equipment Trust Certificate (ETC) financing is a debt instrument that enables a company to acquire and use an asset while paying for it over time, with the debt issue secured by the equipment or physical asset itself.
Read more →409A valuation
A 409A valuation is an independent appraisal of the fair market value (FMV) of a private company's common stock. The 409A valuation is required by the IRS for private companies that issue stock options to their employees to ensure these options are not issued at a discount.
Read more →83(b) election
An 83(b) election allows you to pay tax on stock you're issued at the time it was granted, rather than when it vests.
Read more →Accelerator
An accelerator is a program that supports early-stage, growth-driven companies through education, mentorship, and financing. The goal of an accelerator is to expedite the growth of these startups within a fixed, typically short, period.
Read more →Accounting Equation
Accounting Equation is a fundamental concept in financial accounting that helps businesses understand their financial position.
Read more →Accounting software
Accounting software is a type of computer software used by businesses to manage and process their financial transactions. This software can range from simple, single-entry systems for basic bookkeeping to more complex, double-entry systems that can process accounts payable, accounts receivable, payroll, and more.
Read more →Accounts payable
Accounts payable (AP) refers to a company's short-term obligations owed to its creditors or suppliers for goods or services purchased on credit.
Read more →Accounts receivable
Accounts receivable (AR) refers to the money owed to a company by its customers for goods or services sold on credit. It's an asset for the company and represents a legally enforceable claim for payment.
Read more →Accounts receivable loans
Accounts receivable loans, also known as invoice financing or factoring, are a form of short-term borrowing where a business sells its outstanding invoices to a lender in exchange for immediate cash.
Read more →Accredited Investor
An accredited investor is an individual or business entity that is permitted to trade securities not registered with financial authorities, such as the U.S. Securities and Exchange Commission (SEC), by meeting specific requirements.
Read more →Accrual accounting
Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned or incurred, regardless of when the money is actually received or paid.
Read more →Accrued Expenses
Accrued expenses, or accrued liabilities, are expenses that a company has recognized but has not yet paid or received an invoice for.
Read more →Accrued Interest
Accrued interest is a financial metric that represents the interest earned on an investment or loan but not yet paid or received.
Read more →Acquihire
An acquihire, a portmanteau of "acquisition" and "hire", is a strategy where a company is acquired mainly for the skills and expertise of its staff, rather than its products or services. It's often seen in the tech startup industry.
Read more →Acquisition
An acquisition is a corporate action where one company, the acquirer, purchases most or all of another company's, the target, shares to gain control of that company. Acquisitions are commonly made as part of a company's growth strategy.
Read more →Activity-based budgeting
Activity-based budgeting (ABB) is a budgeting method where activities that incur costs are recorded, analyzed, and connected to their outputs. It differs from traditional budgeting as it provides a more detailed view of where funds are being spent and how they contribute to an organization's goals.
Read more →Adjusted gross income
Adjusted Gross Income (AGI) is a measure of income calculated from your gross income and used to determine how much of your income is taxable. It's the total income you receive over the course of the year, including wages, interest, dividends, and capital gains, minus specific deductions.
Read more →Advisory Shares
Advisory shares are a type of stock option given to company advisors, typically in startup companies, as a form of non-cash compensation in exchange for their expertise and guidance.
Read more →Allocation
Allocation refers to the distribution of resources, such as capital or personnel, within a business or investment portfolio. It's a strategic decision made to maximize efficiency, profitability, or to achieve other business objectives.
Read more →Alternative Financing
Alternative financing refers to financial channels, processes, and instruments that have emerged outside of the traditional finance system such as banks and capital markets. It includes crowdfunding, peer-to-peer lending, merchant cash advances, and more.
Read more →Amortization
Amortization is the process of expensing the cost of an asset or loan over time.
Read more →Angel Investor
An angel investor is an individual who provides capital to startups in exchange for equity.
Read more →Angel Round
An angel round is a type of funding for startups, typically provided by wealthy individuals known as angel investors who invest their own money into a company.
Read more →Annual Contract Value (ACV)
Your annual contract value (ACV) tells you the annual value of each customer or account regardless of the contract’s length. You can use your ACV to estimate how much you’ll earn from each new customer and how many customers you’ll need to reach your revenue goals.
Read more →Annual Percentage Yield (APY)
APY or Annual Percentage Yield, is a metric used to express the annual rate of return on an investment, taking into account the effect of compounding interest.
Read more →Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) tracks the expected revenue from products and services that are sold with contracts that last at least 12 months. Software as a service (SaaS) companies, and other companies that offer subscriptions, commonly track their ARR.
Read more →Anti Dilution Ratchets
Anti-dilution ratchets are contractual measures intended to protect early investors from the dilution of their ownership stakes during subsequent funding rounds where new shares are issued at a lower price.
Read more →Anti-dilution clause
An anti-dilution clause is a provision in an investment agreement that protects investors from dilution of their equity stake if the company issues shares at a lower price than what the investors originally paid.
Read more →Asset
An asset is a resource with economic value that is owned or controlled by an individual, corporation, or country, with the expectation that it will provide a future benefit.
Read more →Asset Financing
Asset financing refers to the use of a company's balance sheet assets, such as short-term investments, inventory, and accounts receivable, to borrow money or obtain a loan.
Read more →Asset Turnover Ratio
Asset Turnover Ratio is a financial metric that helps businesses evaluate the efficiency of utilizing their assets to generate revenue.
Read more →Audit
An audit is an objective examination and evaluation of an organization's financial statements, usually conducted by an independent party, to ensure their accuracy and fairness.
Read more →Average Revenue Per User (ARPU)
ARPU, or Average Revenue Per User, is a metric that helps businesses understand the revenue generated by each user over a specific period.
Read more →B Corporation
A B corporation (or Benefit Corporation) is a type of for-profit company that has an additional mission to contribute positively to society or the environment. It's a legal structure that balances public benefits with profit-making, and is designed to hold companies accountable for producing some kind of societal benefit in addition to profits.
Read more →Balance Sheet Financing
Balance Sheet Financing (BSF), or Off-Balance Sheet Financing (OBSF), is a financial maneuver used by companies to manage their assets and liabilities without affecting the main balance sheet.
Read more →Balance sheet
A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time, providing a snapshot of what the company owns, owes, and the amount invested by shareholders.
Read more →Bank reconciliation
Bank reconciliation is the process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate.
Read more →Billings
Software as a service (SaaS) companies often track their current and future income in three ways: bookings, billings, and revenue. Billings are the money that you’ve invoiced for and will be paid soon.
Read more →Board Director
Your startups’ board members, the board directors, have a fiduciary duty to the company’s shareholders and they make important decisions, such as whether to sell the company. Generally, founders will be the first board directors and lead investors may get board seats during each funding round.
Read more →Bookings
You book a client when they sign a contract with your company, and your bookings are the total value of the signed contracts.
Read more →Bootstrap Funding
Bootstrap funding is a strategy where entrepreneurs start and grow a business using personal finances or the operating revenues of the business itself, without external investment.
Read more →Bootstrapping
Bootstrapping is a method where an entrepreneur starts a company with little capital, relying on personal finances or the operating revenues of the new company rather than outside investments.
Read more →Bottom line
The "bottom line" refers to the net income, or profit, a business has earned. It's called the bottom line because it's typically found at the bottom of the income statement, after all expenses, including taxes and interest, have been subtracted from revenues.
Read more →Break-even points (BEPs)
Break-even points (BEPs) are a metric for businesses to understand the level at which their revenues equal their costs.
Read more →Bridge loan
A bridge loan is a type of short-term loan intended to "bridge" the gap between short-term cash requirements and long-term financing. These loans are commonly used in real estate transactions and by startups awaiting closing on their next round of funding.
Read more →Budget forecasting
Budget forecasting is the process of making projections about revenues and expenditures for a future period based on historical data, market research, and other relevant information. These forecasts form the basis for a company's budget.
Read more →Budget variance analysis
Budget variance analysis is a financial process where the actual budgeted amount is compared to the projected budget. The purpose is to find any discrepancies, or "variances," to help improve financial control and decision-making.
Read more →Burn Multiple
Your burn multiple is your net cash burned divided by your net new ARR in a given period. It’s a measure of capital efficiency, and you’d like to keep it as low as possible.
Read more →Burn Rate
Burn Rate is a financial metric that measures the rate at which a company is spending its cash reserves, typically expressed as a negative cash flow.
Read more →Business Incubator
A business incubator is a support system designed to accelerate the growth and success of startup and early-stage companies.
Read more →Business Model
A business model is a company's plan for making a profit, which includes the products or services it plans to sell, the target market, and anticipated expenses.
Read more →Business expenses
Business expenses are the costs associated with operating a business. These may include rent, utilities, salaries, office supplies, marketing expenses, taxes, and more.
Read more →Buy now pay later
"Buy now, pay later" (BNPL) is a type of point-of-sale installment loan that allows consumers to purchase goods or services immediately and pay for them over a period of time. These services can provide interest-free loans if the balance is paid in full by a certain date.
Read more →C Corporation (C Corp)
A C corporation, or C corp, is a type of legal business entity. C corps are the default corporation type and a popular choice for startup founders. Other options include S corporations and limited liability companies (LLCs).
Read more →CFO
A CFO, or Chief Financial Officer, is a senior executive responsible for managing the financial actions of a business. The CFO's duties include tracking cash flow, financial planning, analyzing the company's financial strengths and weaknesses, and proposing corrective actions.
Read more →COO
A COO, or Chief Operating Officer, is a high-ranking executive in a company who oversees the day-to-day administrative and operational functions of a business. The COO reports directly to the CEO (Chief Executive Officer) and is often considered the second in command within the organization.
Read more →CPA
A CPA, or Certified Public Accountant, is a professional accountant who has passed the Uniform Certified Public Accountant Examination and met all other state education and experience requirements to obtain this certification in the United States. CPAs offer financial statement audits and other attestation services to help businesses comply with laws and regulations.
Read more →California Sales Tax Exemption
The California sales tax exemption applies to certain types of sales and is designed to encourage economic development or to benefit certain categories of purchasers. The type of goods that may be exempted from sales tax vary, but generally include items like groceries, prescription medicines, and certain agricultural supplies.
Read more →California Statement of Information
The California Statement of Information is a document that most businesses are required to file with the California Secretary of State on a regular basis. This document includes important information about the business, such as its address, the names of its officers, and the nature of its business activities.
Read more →Cap Table
A capitalization table (cap table) tells you who owns what percentage of a company. It often starts as a spreadsheet, but there are programs that can help you create and manage your cap table.
Read more →Capital
Capital refers to the various assets and resources that hold value or benefit for a business, such as physical assets, intellectual property, or financial assets.
Read more →Capital Asset Pricing Model (CAPM)
CAPM, or the Capital Asset Pricing Model, is a financial theory used to calculate the expected return on an investment while considering its risk relative to the overall market.
Read more →Capital Cycle
Capital Cycle is a financial metric that helps businesses understand the time it takes for their invested capital to generate returns.
Read more →Capital Employed
Capital Employed is a financial metric used to measure the total resources a company has invested in its operations.
Read more →Capital Expenditures (CapEx)
CapEx, short for capital expenditure, is a metric that represents the funds a company uses to acquire, upgrade, or maintain its physical assets, such as property, equipment, or technology.
Read more →Capital Gains
Capital Gains is a financial metric that represents the profit made from the sale of an asset, such as stocks, real estate, or other investments.
Read more →Carry or carried interest
Carry, or carried interest, refers to the share of profits that a fund manager receives as compensation, regardless of whether they contributed any initial funds. This is a common form of compensation in venture capital and private equity firms, where managers are often rewarded based on the fund's performance.
Read more →Cash Conversion Cycle (CCC)
The Cash Conversion Cycle (CCC) is a financial metric that helps businesses understand the time it takes to convert their investments in inventory and other resources into cash flows from sales.
Read more →Cash Flow Forecast
A cash flow forecast is the process of estimating the flow of cash in and out of a business over a specific period of time, helping companies predict future cash positions, avoid cash shortages, and efficiently utilize cash surpluses.
Read more →Cash accounting
Cash accounting is a method of accounting where revenues are recorded when cash is received, and expenses are recorded when they are paid. This method does not recognize accounts receivable or accounts payable.
Read more →Cash burn
Cash burn refers to the rate at which a company spends its cash reserves, particularly common in startups that may not yet be profitable. It's an important measure of a company's financial health and sustainability.
Read more →Cash burn rate
A cash burn rate is a measure of how quickly a company uses up its cash reserves in its operations. This is especially important for startups and other companies that may not yet be profitable.
Read more →Cash disbursement
Cash disbursement is the outflow of cash from a business for expenses, investments, or any other operational or financial costs. It's an important part of managing a company's cash flow and maintaining accurate financial records.
Read more →Cash flow
Cash flow is the net balance of money moving into and out of a business at a specific point in time.
Read more →Cash flow from operating activities
Cash flow from operating activities (CFO) is a measure of the amount of cash generated by a company's normal business operations. It is an important indicator of a company's financial health, as it shows the company's ability to generate consistent positive cash flow from its core business operations.
Read more →Cash management
Cash management refers to the process by which a business manages its financial operations, including collecting receivables, managing payments, and ensuring liquidity. It's essential to the financial health of a business and ensures that the company can meet its obligations.
Read more →Cash out date
A cash out date refers to the specific date when a business will run out of cash if nothing changes in its income and expenses. It's a crucial metric in cash management and financial forecasting for startups.
Read more →Cash projection model
A cash projection model is a vital tool that provides insights into the future financial health of your startup by predicting your cash inflows and outflows. It helps you understand when and where your startup might run out of cash, thereby assisting you in making informed business decisions.
Read more →Cash zero date
A "cash zero date" is the forecasted date at which a company will run out of cash if it does not raise additional funds, reduce costs, or generate more revenue. This date is a crucial financial milestone for startups as it highlights the importance of cash flow management and the need for financial planning.
Read more →Chart of accounts
A "chart of accounts" is a structured list of all the accounts used by a business to track its financial transactions and to prepare financial statements. It serves as the backbone of a company's accounting system, categorizing transactions into different buckets for clear and easy financial reporting.
Read more →Chief executive officer (CEO)
A Chief Executive Officer, or CEO, is the highest-ranking executive in a company, responsible for making major corporate decisions and managing the overall operations and resources of a company. The CEO is the main point of communication between the board of directors and corporate operations.
Read more →Chief financial officer (CFO)
A Chief Financial Officer, or CFO, is the executive responsible for managing the financial actions of a company. Their duties include tracking cash flow, financial planning, analyzing the company's financial strengths and weaknesses, and proposing corrective actions.
Read more →Chief operating officer (COO)
A Chief Operating Officer, or COO, is a high-ranking executive responsible for the day-to-day administration and operation of a company. The COO typically reports directly to the Chief Executive Officer (CEO) and is considered second-in-command.
Read more →Churn
Customer churn refers to how many customers you’ve lost during a period, while revenue churn can refer to the annual or monthly recurring revenue change from losing customers. Depending on your business, churn could refer to someone who stops using your service, uninstalls your app, downgrades their plan, or cancels a subscription.
Read more →Cliff vesting
"Cliff vesting" is a term used in equity-based compensation that refers to the period before an employee fully owns their shares or options. With cliff vesting, the employee earns the right to their full benefits after a specified period, typically one year, rather than gradually over time.
Read more →Cloud accounting
Cloud accounting, also known as online accounting, refers to the use of accounting software where both the software and the data are stored online on remote servers. This approach provides access to real-time data from any device with an internet connection, which is a significant advantage over traditional desktop-based software.
Read more →Cohort Analysis
Cohort analysis involves segmented populations based on a shared characteristic, such as customers who signed up for a service during the same month, to better analyze and understand trends.
Read more →Common stock
Common stock is a type of equity ownership in a corporation, representing a claim on part of the corporation's assets and earnings. Common shareholders typically have the right to vote on major corporate issues, such as electing the board of directors and authorizing major corporate initiatives.
Read more →Competitive Analysis
Competitive analysis is the process of understanding your competitors in business, including their strengths and weaknesses, and how your product or service compares. This analysis aids in defining your value proposition, identifying market opportunities, and developing competitive strategies.
Read more →Compounded monthly growth rate (CMGR)
A compounded monthly growth rate (CMGR) is a metric used to calculate the average rate at which something (such as revenue, user base, etc.) has grown every month, over a specified period. CMGR is a common metric in the startup world, where monthly growth rates can be a valuable indicator of a company's momentum and potential.
Read more →Contra revenue
Contra revenue refers to deductions from gross revenue that result in net revenue. It includes items such as sales returns, discounts, and allowances that are deducted from gross sales to arrive at a company's total net sales.
Read more →Contraction
Contraction in a business context refers to a period of economic decline or slowdown. It is a phase in the business cycle where the growth of a company or economy slows, stalls, or shrinks.
Read more →Contribution Margin
Contribution Margin is a financial metric that helps businesses understand the profitability of their products or services.
Read more →Corporate Venture Capital
Corporate Venture Capital (CVC) involves large corporations investing directly in external startups with the dual objectives of achieving strategic goals and securing financial returns.
Read more →Cost Per Acquisition (CPA)
Cost Per Acquisition (CPA) is a marketing metric that measures the aggregate cost to acquire one paying customer on a campaign or channel level.
Read more →Cost Per Click (CPC)
Cost per click (CPC) advertising is when you pay based on how many people click on your ad. With CPC advertising, you can be certain that you’re not paying for ads that don’t result in someone visiting your website.
Read more →Cost Structure
Cost structure refers to the various types of expenses a business incurs, typically composed of fixed and variable costs.
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